The following contribution is from a reader of My Money Design. If you’d like to write for us, please feel free to contact me.
Borrowing money is usually one of those things that sounds great at first, until the bills start coming in. If you take a look at just how much money you have to repay for the amount you borrowed, you will realise how much money you may have wasted on interest. If you would have planned ahead before borrowing money, you would now have more cash available to purchase other things you want.
The problem is that debt often turns into a never-ending cycle of outstanding debt as you continue to accrue more and more interest. Many people may spend their entire lifetime trying to climb out from under their pile of debt. The only way to avoid these issues is to not go into debt in the first place. Below is a list of several tips that can help you get by without borrowing any money.
Note that borrowing to pay down debt may only put you in a worst situation. If you have serious financial issues try looking for assistance through non-profits and financial benefits from the government – there are numerous programs that provide low to no interest loans for essential living expenses.
Only Use Cash:
One of the best ways to avoid borrowing money is to pay for everything with cash. Credit cards have made it too easy for people to make purchases on the spur of the moment without even taking into consideration how much it cost. Paying with cash makes that purchase more tangible and helps you see exactly how much it cost. It can also reduce the risk of impulse shopping that often leds to unwanted debt.
Use a Prepaid Credit Card:
Some people obtain a credit card because they claim it is the only way to make online purchases or make a hotel reservation. This could not be further from the truth. First of all, there are plenty of safe alternatives to shopping online that do not involve borrowing money. You can make purchases with a prepaid credit card or set up a Paypal account that is connected to your bank account. As for hotel reservations, you may also be able to use a prepaid credit card. If not, most hotels will accept a cash deposit in place of a credit card. They will return your deposit to you at the end of your stay if no damage is done to your room.
Live Within Your Means:
If you want to live without borrowing money, you need to learn how to live within your means. This means you cannot spend more money each month than you have coming in. This is very difficult for many people, because it is so easy to obtain credit today that many people want to purchase the thing they want as soon as possible. However, it is important to realize that if you save up for the things you want, you will be spending less money in the end because you will not have to pay for interest. This will put more money in your pocket and over time help you purchase more of the things you want.
One Goal at a Time:
The most effective way to purchase the things you want without borrowing money is to save up and buy them one at a time. You should set up both long-term and short-term goals, and then create a saving and investment strategy that will help you achieve these goals without borrowing money.
While it may not seem like it at first, you will be able to purchase more of the things you want if you live without borrowing. In addition, you will not have to stress about how to pay all of those credit card bills each month. Even things like a car or a home can be purchased without borrowing money. The trick is to live within your means and save as much as possible each month. That savings will accumulate and be available to purchase the things you need.
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3) It’s Time to Get Real About Our Household Expenses
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Michael Taylor says
My wife and I have been using cash since 2009. It definitely makes spending more painful, especially for large purchases.
“The most effective way to purchase the things you want without borrowing money is to save up and buy them one at a time.”
This is the most simple piece of advice ever! I received this advice when I was 7 years old! However, it is essentially that we repeat it over and over, as it seems that modern society have forgotten its importance!
Unfortunately there is a lot of good advice that seems to have lost it’s meaning or been twisted by modern media. For example “buy low sell high” is still a principle that I live by. Though a lot of people have heard this phrase before, they still don’t fully understand it and often create actions that contradict it.
How do you feel about using tax deductible debt to grow your asset base, such as a margin loan or buying rental properties?
I actually think both are great and I’d love to explore both further (if building blog income wasn’t my primary focus). Anytime you can shelter your money from taxes I’m paying attention!
I’m using both very heavily in my portfolio, both for a tax management strategy, as well as a performance magnification strategy.
Importantly, I see the tax advantages as a by-product, not the primary reason to invest.
If I don’t take on the risks associated with gearing, I can’t reach my $10m to retire.
Ryan @ Impersonal Finance says
Great tips. Living below your means is key. If you can consistently do that, you should have no problem building up a nice little cushion for emergencies that you would have previously borrowed to cover.
There’s nothing better than knowing your income is going to cover your expenses because you’re following the golden rule of In > Out.
Jeremy Norton says
Using cash at all times is the most effective way for me to budget. It is indeed difficult to pick out large amount of money from your own pocket so you’d really think many times before spending too much.
ANY time I have to buy something out of pocket I feel it way worse than when I use my credit card. This is when you can use mental games to psych yourself into spending less.